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Friday, 13 April 2012

Kya seekha?

It is said that learning is a life-long process. Since the time we are born, the world presents to us so many varied experiences and we learn from each one of them. And then there is formal education for the more privileged ones where certain skills are imparted by teachers which will help us to face the travails of the world and make a living out of it. Even after entering professional careers, learning keeps happening through experiences of the work environment. We keep moving towards being better individuals by the day.

In the ancient Indian system, young lads were sent away from the comfort of their homes into the rigorous gurukuls where they were subjected to a tough lifestyle to gain physical strength, which in turn prepared them to acquire mental toughness and spiritual knowledge through a powerful guru. Having stayed at home and finished all my schooling, then college and even my engineering and work life, I always wondered how life would be different if I had to stay away from the comfort of my home and study, would the learnings be any different or not? It was something which I wanted to experience once. So, when the opportunity came two years ago in the form of MBA admission in faraway Bengal, I was more than eager to take it. The independent life over here has surely taught me a lot of things. Some of them were expected. Others were situational. But each one of these experiences has surely taught me few life lessons.

In this post I have tried to put down few learnings which happened in the MBA classrooms over the span of two years. Wherever possible, I have tried to link these to a practical experience so that it gets reinforced. Of much more value and importance than these academic theories have been the experiences and knowledge gains which have happened out of classrooms – from co curricular activities, peer groups, hostel life, etc. And all these require big posts by themselves which I plan to write in the forthcoming days. Although the list is by no means comprehensive of all the theories/cases/subjects I have learnt here, this is just a kind of takeaways from the theories for me. It is a kind of ‘My learnings from MBA curriculum’ if you like to call it so, of course with simpler examples.

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1. Fixed cost = Sunk cost
Some of the most feared classes of first semester used to happen on Monday mornings when the highly respected, highly decorated Dean would take a course in operations for us. Of course, there are many mathematical takeaways in the subject. But if there is one practical thing you can learn – it is about the fixed costs being sunk costs. There is no need to get overly emotional about them. For example, you spend so much money to buy a new computer and find out that it is absolutely worthless for use after two years. Just because a heavy investment was made two years ago, there is absolutely no reason to get overly emotional about keeping it. If you can add more value to your business by scrapping them, go ahead and do it right away.

Practical example: When we used to go for trips during vacation, we used to pay 24 hour advance in many cases for accommodation. In some cases, we would finish the local sightseeing within 16 hours and would have totally had our share of fun. Some people insisted on staying in the room for full 24 hours just because we had already paid for it, just to cover up the already sunk cost. What they dint realize was that the additional 8 hours would also entail variable expenses without adding much to the fun which we already had. It is best to ignore these and move on.

2. No theory is perfectly wrong or right!
For every theory we learn, there is either a contradictory one which says the opposite or some clause in it which asks us to apply it with caution. Even the simplest of theories can get more and more complicated with addition of new information. Thus, no theory can be perfectly right or perfectly wrong. And it is for this reason, we have the famous manager jargon ‘It depends’

Who won the battle between Dettol and Savlon? “It depends!”
Should you buy banking stocks this year? “It depends!”
Should we fulfil the contract or back out? “It depends!”
Should you marry or not? “It depends!” :) :)

Sometimes I feel “It depends” can be the answer to any question asked in management. Let me take as simple a question as possible. What is the standard deviation of 1, 2, 3, 4, and 5?

A simple answer to this is the square root of variance and hence 1.414.

And as usual the management answer to this would be “It depends”. It depends if these numbers are the entire population or just samples from a population. If it is the former, then 1.414 is correct. But if these are samples, we have lost one degree of freedom and hence the deviation comes to 1.5811… amazing isn’t it?

And it is because of this ‘it depends’ that management consulting thrives as a profession. And there would always be some people who give fundas all the time and you would like to call them management gurus or management babas :) People want experts’ opinions on what is the best decision to take given the limited information available. Maybe having a positive reinforcement from experts also helps build the confidence factor to take strong decisions. In retrospect, all cases can be analyzed to the bare minimum and seen what the mistake was. But in real life, you just have to go ahead with whatever is the best solution for that particular situation.

There will always be people who give you suggestions or criticize you no matter how much you do. There will always be theories which can prove you wrong. Listen to all suggestions, read all theories and then take an informed decision. Don’t just reject or accept anything blindly just because someone said so. Use your own judgment and discretion if you are responsible for making the decision.

3. Nothing is riskless!
Perhaps there has been no subject in MBA till now which has not talked about risk or volatility till now. Also, it is only logical that risk management is taught the most in MBA courses because if everything is running smoothly without any risks, there would be no need for professional management in the first place. However, even after studying so many theories on risk management, the only thing you learn is, you can only manage a certain amount of risk – can never eliminate it totally.

One of the best anecdotes which I remember when I think about risk management is an early morning finance class where the teacher was talking about mitigation of risk in mutual fund investments. According to some experiments, he said, it was proved that random choices of funds made by training orang utans yielded more returns than choices made by professionals! Such is the volatility in the market that relying on any individual or market expert makes no sense at all. It is only in retrospect that you realize that something was worth the risk or not.

You can have so many statistical models, econometric models and whatsoever to model the risk, but no model can take all the factors into consideration and predict the future accurately. A perfect example for this is the case of Nobel prize winning Myron Scholes (creator of the famous Black and Scholes model) whose very model which helped him win the nobel prize caused his hedge fund to go bankrupt in the next year's recession. It is because of this inherent risk in using such complicated formulas that one of our professor jokingly remarked in class “If you are managing someone else’s money, go ahead and use all the formulas in the world. But in case of your own money, prefer common sense over complex formulas any day”. Isn’t it?

4. Change is the only constant
A corollary which immediately follows the risk and volatility theories is that of Change management. In a dynamically changing environment, there is no way anyone can be complacent about their position or performance anytime. Change keeps happening and inorder to survive, you have to be adaptable to change. Most of the cases which we discussed in class talked about feasible solutions to turnaround organizations which were not doing well. But the one point which people just mention and not give much attention to is about change management. And we all know, it’s the one which can make or break business decisions. I say this from experience of my work experience in my past company where a well-calculated, prudent, takeover decision by Nokia failed because it could not manage the changes in an efficient manner.

One of my wing mates in hostel, Mr Mohanty is a PhD student and his work involves change management. Sitting on the foyer in our hostel, we have shared a lot of enlightening talks. He once told me – human beings are the weak species if you look at the nature’s scheme of things. And yet, by their sheer ability to adapt, they have survived through tough times – one of the supreme qualities of humankind – adaptation. To quote the words of Darwin, ‘it is not the strongest species that survives, nor the most intelligent one – it is always the one which is most adaptable to change’ – True, isn’t it?

5. There is bias everywhere
No matter how much people claim that they are neutral, there is always an inherent bias in people. There are a lot of factors responsible for this bias. It could be their region, language, upbringing, personal experiences, etc. But one thing is for sure, this bias cannot be eliminated. When we go for surveys to collect unbiased samples or understanding organizational cultures, this is one of the important things to keep in mind. Trying to search for the perfectly neutral unbiased sample is a futile thing to do. Acknowledging this bias and trying to find a practical workaround would be a better thing to do.

As and when you go higher up in the organization towards leadership roles, this point becomes increasingly important. You cannot expect all of your employees to behave in the same manner all the time. Neither can you expect that everyone will do the same amount of work given the same time and resources. Understanding that people have their own predispositions and biases go a long way in assigning tasks and winning the confidence of the subordinates.

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Most of the points which I have mentioned here seem to be common knowledge. Anyone would wonder if an MBA degree is worth all the hype and effort to learn such simple truths. But mind you, each degree has its own value and worth in the scheme of things. Though the ultimate learnings are simple, it takes a lot of hard work and effort to reach there. It’s the same way in life everywhere. It takes a lot of effort and hard work to figure out simple truths. Prince Siddhartha had to meditate for years and years and subject himself to harsh treatments to finally attain the Nirvana state, but the Buddhist teachings are seemingly simple and easy to follow even to this day. And as I said earlier, this list is by no means complete. Maybe I will write about few more learnings of MBA sometime soon. Maybe I might come back with one more post and contradict some of the theories which I have posted today. It just depends :)

P.S:
1. Want to know more on mean and standard deviation? Read here
2. Thanks to Ratan Ranjan and Samrendra Mohanty for the long bakar sessions which helped me to rediscover some of these past seemingly unimportant learnings